Consumers consider reputation as well as price, UTS study finds

When consumers are deciding what to buy, they don't look at a product's features in isolation. Research from University of Technology Sydney shows that the reputation of the manufacturer is also critical when it comes to the price shoppers are prepared to pay.

In a study, UTS found that shoppers were prepared to pay about a 9 per cent premium for a product manufactured by a company that had a better reputation than competitors. The findings do not bode well for banks and other financial services companies, whose reputations have been battered by the Hayne royal commission and which might now find their customers are more sensitive to price rises, warns UTS associate professor Paul Burke.

"Because there has been damage to their corporate reputation, consumers will be a little bit more cautious when a product starts to change," Burke says. "If interest rates [and fees] rise, consumers might shop around a bit more. Consumers will be looking around for competition.

In an experiment, consumers were prepared to pay more for a TV from a company with a superior reputation.

The other lesson from the research is that when companies consider their overall reputation, which includes how they are perceived by shareholders, employees and the community, they should also take a hard look at their reputation among consumers.

"Often consumers get ignored when it comes to corporate reputations," Burke says.

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The UTS academic stresses that his research was on televisions, rather than financial services products, but the findings can be applied across the consumer landscape.

Reputable manufacturer

In the study, participants were asked to give an evaluation of the corporate reputation of each of three TV makers. Separately, they were asked to choose between televisions based on standard features such as warranty and price. The TV sets were priced between $1499 and $1999.

The researchers found that participants were prepared to pay a premium for important features, but an even greater premium for a product from a reputable manufacturer.

According to the study, consumers were willing to pay $121 more for a television with a 55-inch screen, compared to one with a 50-inch screen. But they were prepared to pay an extra $147 for a TV from a company that was one standard deviation higher on the corporate reputation measure.

The results demonstrate that companies need to work hard to communicate that they are environmentally and socially responsible, support good causes, have a positive work environment and excellent leadership and financial performance, Burke says.

"Marketing managers need to be concerned about corporate reputation not only because it builds loyalty and trust but also because product features appear more valuable, so consumers are willing to pay more," he says.

In banking, Burke predicts, there will be winners and losers, as some institutions manage to restore their reputation earlier and some have sub-brands that are not associated with the parent company and which have not suffered brand damage.

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Sally Patten is the editor of The Australian Financial Review's BOSS Magazine. Based in Sydney, she specialises in leadership and management. Connect with Sally on Twitter. Email Sally at spatten@afr.com